China’s coffeehouse market is experiencing significant downward pressure on prices, primarily driven by Cotti Coffee, which is offering most of its beverages for less than RMB 10 (USD 1.4) per cup. Industry leader Luckin Coffee is strategizing to counter this aggressive pricing.
“Get delicious coffee for RMB 9.9,” reads a promotional sign at a Cotti Coffee location in Guangzhou’s business district as of late May. Since early 2023, Cotti has introduced various products at this competitive price point for limited periods.
The most recent promotion began in late February and is set to end in May. When asked about future plans for June and beyond, a barista mentioned that the head office’s decisions were unclear but hinted that even lower prices might be possible. Currently, an RMB 8.8 (USD 1.2) coupon for select drinks is available on social media.
Cotti’s pricing strategy significantly undercuts Luckin Coffee, which typically prices its drinks around RMB 10, and far below Starbucks’ average of RMB 30 (USD 4.1) per cup. Cotti’s affordable offerings are on par with convenience store coffee, appealing to budget-conscious consumers.
“Our performance this quarter was disappointing and did not meet our expectations,” said Starbucks CEO Laxman Narasimhan during an earnings call for the January-March quarter. The US-based coffee giant experienced its first revenue decline in 13 quarters, primarily due to an 11% year-on-year drop in same-store sales in China.
Luckin Coffee, which operates approximately 18,600 stores, also reported lackluster results. Despite increasing its revenue in the first quarter by opening around 2,300 new locations, same-store sales at its directly managed outlets fell by 20%. CEO Guo Jinyi attributed this decline to intensified competition and broader economic shifts.
Cotti Coffee, established by former members of Luckin’s founding team, began opening stores in 2022 and has quickly expanded, nearly matching Starbucks in the number of outlets in China. This rapid growth is fueled by a low-investment franchising strategy.
According to China Merchants Securities, about 70% of Cotti locations are small shops under 40 square meters, requiring an initial investment of roughly RMB 240,000 (USD 33,130). Overall initial costs, including other fees, are reportedly lower than those of competitors, as are the royalty rates for franchisees.
To maintain low operational costs, Cotti has invested in large-scale infrastructure, such as a massive roasting plant and other facilities. These efficiency measures have reduced the company’s cost per cup to RMB 7-8 (USD 0.9-1.1), as reported by a Cotti official at an industry conference in mid-May.
Despite the intense competition, Starbucks remains a popular choice in China, with consumers embracing both premium brands and budget-friendly alternatives. Among the latter, Luckin Coffee is locked in a price war with Cotti, frequently offering weekly coupons for RMB 9.9 coffees to retain market share.